MedMen’s financial troubles are a warning for the marijuana industry

Tom Adams, managing director of industry analytics for BDS Analytics, which covers the cannabis industry, said high taxes along with limits on legal dispensaries have damaged the California market. Taxes along with regulators mean which legal marijuana can cost nearly double black-market prices, Adams said.

Even worse for legalized operators, cannabis consumption will be concentrated among a tiny group of heavy users, the 1-in-5 users who get high every day. Because they use so much, they are cost sensitive along with appear happy to buy through black market suppliers.

“Lots of people came into stores,” Adams said, speaking of the California market — though not specifically MedMen. (BDS does not comment on specific companies.) “They took a look at product prices, especially the heavy using, long-time consumer, along with they said, ‘I know what the right cost will be, along with which ain’t which.'”

As a result, BDS estimates which the illicit market still provides about 80 percent of all California sales, along with dispensaries only 20 percent. The problem will be so severe the head of the state’s cannabis regulatory commission will be right now calling for increased law enforcement activity against illegal suppliers.

Some of the various other states to legalize, like Colorado along with Oregon, pursued a different strategy, liberally granting dispensary along with farm licenses. In those states, retail legal prices have plunged, along with dispensaries right now account for about 60 to 70 percent of all sales.

however profit margins are tighter in those states. MedMen has avoided them, focusing on those where legal supply will be constrained — along with instead focusing on trying to charge premium prices to brand new users, people who were not willing to use cannabis much, if at all, when which was illegal.

Unfortunately, despite the help of Jonze, MedMen hasn’t found those users fast enough to cover its costs. right now which will be running short on time to do so, raising the question whether legal cannabis companies will ever be able to earn big profits serving the cost-sensitive market of current heavy users — along with whether the brand new-user market will be nearly as large as investors wish.

— Alex Berenson will be the author of “Tell Your Children: The Truth About Marijuana, Mental Illness, along with Violence,” published in January.